COURT OF APPEAL REFUSES APPEAL AGAINST ORDER FOR INDEMNITY COSTS: PARTIES WHO ARE JOINED TO A SPECULATIVE ENTERPRISE IN LITIGATION SHOULD EVALUATE THEIR POSITION WITH CARE

 In  Ford & Anor v Bennett & Anor [2019] EWCA Civ 1604 the Court of Appeal dismissed an appeal against a trial judge’s decision to award indemnity costs.  The judgment contains a lesson to “additional parties” to litigation.

“Parties who effectively join themselves, or allow themselves to be joined, to litigation on the basis of the assertion of a shared oral agreement, so long after the event, are clearly taking the risk of a speculative enterprise in litigation, which should only reasonably be pursued after careful evaluation.”

THE CASE

After a 12 day trial the judge found that a defendant, and several additional parties, had failed to prove that there was an agreement to purchase a football club.  The judge ordered that the additional parties pay costs on the indemnity basis. The additional parties appealed.

THE TEST ON APPEAL

The test on appeal was agreed

1. 1. It was common ground on this appeal that the leading modern authority was Excelsior Commercial & Industrial Holdings Limited v. Salisbury Hammer Aspden & Johnson [2002] EWCA 879, [2002] CP Rep 67, with its test that, for indemnity costs to be ordered, there had to be some conduct or circumstance taking the case out of the norm. That was the test applied by the judge.

   2. On this appeal, the court was not taken to any other decision, although others were collected together in a small bundle of authorities.

   3. In Excelsior, the trial judge had made an order for indemnity costs, and this court did not interfere with that decision. Lord Woolf CJ said (at [32]):

In my judgment it is dangerous for the court to try and add to the requirements of the CPR which are not spelt out in the relevant parts of the CPR. This court can do no more than draw attention to the width of the discretion of the trial judge and re-emphasise the point that has already been made that, before an indemnity order can be made, there must be some conduct or some circumstance which takes the case out of the norm. That is the critical requirement.

1. 1. In the circumstances, litigants are discouraged from citation of authority in what, particularly at first instance, is a well-travelled road, depending in each case on its particular circumstances and the discretion of the trial judge.

   2. I would only add that Mr Berkley’s citation from the 2018 White Book can be traced back to what Tomlinson J (as he then was) said in Three Rivers District Council v. Bank of England [2006] EWHC 816 (Comm), [2006] 5 Costs LR 714 at para [25], where among a longer list he highlighted as a possible ground for indemnity costs –

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

Tomlinson J’s list continues to be cited in the 2019 White Book at 4.3.10.

THE APPEAL WAS DISMISSED IN THE CURRENT CASE

The Court of Appeal dismissed the appeal against the award of indemnity costs.

1. Mr Hornett has made a decent and attractive case that the judge erred in failing to distinguish the additional parties from the defendant Wayne in his order for indemnity costs. In the end, however, I was not persuaded by his submissions. I would put my reasons in essence as follows.

2. There is no complaint about the test which the judge applied, and no other jurisprudence which has been called into play. The appeal has been argued on the basis of the facts and circumstances and conduct of this case.

3. The additional parties had based their claim on an agreement which the judge described as a “fiction” (costs judgment at para [31]). He was entitled so to describe it. In his main judgment he had found that the alleged agreement was not made and that nothing had been said to lead the Defendants to think that it had been (main judgment at para [236]). Wayne’s evidence was “contrived”. None of the Defendants could be relied upon as “truthful” (ibid at para [226]). They gave evidence about matters 16 years earlier which “they could not possibly have remembered” (ibid). It was “not a case in which witnesses have been found merely to be mistaken or of poor memory” (costs judgment at para [31]).

4. In this connection, the judge emphasised the flimsiness of the claim to the agreement of partnership. The agreement was supposed to have been made in June 2002. Wayne said that later in that year he had purchased the ground in support of the partnership, and had signed a transfer as transferee (although no such document could be produced). The additional parties relied on Mr Baker having written the N&Q document (a copy document produced by Mr Renoldi during the proceedings as having been recently discovered by him) giving details of the partnership split, and purporting to be dated 8 February 2005 (main judgment at para [109]), but of which no original version could be found. The judge rejected all such claims. He said in terms that “After careful reflection, I am not satisfied that the photocopy document produced at the trial is a true copy of a document produced on 8 February 2008” (at main judgment [117]). The judge emphasised at the outset of his main judgment (at para [9]) that “until about January 2014 none [of the Defendants] took any step to assert any claim to any proprietary or other interest in the Ground or the football club business”, despite their exclusion from the business beginning with Mr Renoldi in 2004, Wayne in 2006 and Mr Ford in 2006 or 2007. The reference to January 2014 was the assertion of the partnership agreement by Wayne in the FTT proceedings. It took another two years, and what might be described as an invitation by Wayne, to bring in the additional parties to these proceedings.

5. In such circumstances, the judge was fully entitled to say that, given the prolonged period of inactivity, it was obvious that the Defendants’ case was “clearly such as to require careful attention and testing” which it had not received (costs judgment at para [31]). Mr Hornett submitted that the judge’s comment, while it may have been fairly made of Wayne, was not justified in the case of the additional parties in suggesting that they ought at least to have known that the case was bad “from the outset” (to cite Mr Hornett’s skeleton). But the point was that the case had not been made “from the outset”, but after more than a decade of silence. Moreover, even if the additional parties are given the benefit of the doubt as to whether they had honestly persuaded themselves that an agreement which the judge said had never taken place (and the judge stated in terms that it was not a case of witnesses found merely to be mistaken or of poor memory, costs judgment at para [31]), the judge’s point that their claim still required “careful attention and testing” was in my judgment completely justified. Parties who effectively join themselves, or allow themselves to be joined, to litigation on the basis of the assertion of a shared oral agreement, so long after the event, are clearly taking the risk of a speculative enterprise in litigation, which should only reasonably be pursued after careful evaluation.

6. Mr Hornett submitted that the judge was wrong to have regarded the additional parties as having made “common cause” with Wayne. In my judgment, however, the judge’s remark was again wholly justified. That was exactly what had happened. In their pleadings and again in their evidence at trial, they adopted Wayne’s case as to the June 2002 agreement. Indeed, neither Wayne nor the additional parties could effectively have run their case without the other. If Wayne had not put down the gauntlet, the additional parties would not have flourished it for themselves. The Defendants were therefore in it together, for better or worse, and, as it transpired, for worse.

7. Mr Hornett, who had been present at the trial and no doubt had formed his own views of Wayne’s (or his witnesses’) discomfiture during their evidence, may, in his closing submissions, have sought to distance the additional parties as far as possible from being tainted by that evidence. However, in my judgment he could not effectively do so. It was, after all, so far at any rate as the alleged oral agreement was concerned, a form of joint enterprise. As it was, Mr Hornett was forced to submit in his closing written submissions that “the Defendant gave his evidence in a measured matter” and leave it to Wayne’s counsel to put the best gloss on his evidence, which there is no sign of Mr Hornett rejecting. How could he? He could ask the judge to focus on the additional parties’ case, but he had to accept that Wayne was “a material witness to it”. Therefore the judge was entitled to treat the three litigants, who were all putting forward the same case as to the same oral agreement, an agreement which the judge found had never taken place, as in a common place, and making common cause. And if that agreement was a “fiction” so far as Wayne was concerned, how could it not be as far as the additional parties as well? At best, they might plead that that they had honestly persuaded themselves of the truth of their evidence, but the judge never acquitted them on that basis, and they had adopted Wayne’s pleaded case on the oral agreement for better or worse.

8. Mr Hornett submits that Wayne’s three professional witnesses were his witnesses, not called by the additional parties. He submits that at any rate Mr Stonebrook and Mr Reader gave evidence about an entirely separate matter (Wayne’s case about his purchase and signed transfer form). However, Mr Ford was involved in the case about the alleged partnership agreement of June 2002 by virtue of his manuscript on the N&Q document, which was relied on by the additional parties. And Messrs Stonebrook and Reader, in supporting Wayne’s purchase and transfer form case, were supporting a case which Wayne was advancing in part in support of the partnership case itself. As the judge observed at para [11] of his costs judgment, that “separate claim required consideration of evidence and argument which was relevant to, and insofar as dispositive would have advanced materially, the Additional Parties’ claims”. It is not for this court on appeal to fault that evaluation of the trial judge.

9. Mr Hornett submitted that the judge had made a series of errors of fact, but I do not accept that this was so. In effect, the matters complained of by Mr Hornett are evaluations, not findings of fact, and in my judgment they were justified. To go through them briefly (see para 20 above): (i) the judge was entitled to refer to Wayne’s pleading of the oral partnership agreement in his FTT defence as an “intimate connection” with the Defendants’ claim herein, even if the additional parties were not themselves litigants in the FTT proceeding; (ii) the judge was entitled, as I have already dealt with above, to describe the Defendants’ case in these proceedings as making common cause between them; (iii) Mr Hornett might have sought to distance his clients from Wayne, but he could not even seek to do so completely, and he could not in my judgment succeed in doing so materially, so that the judge was entitled to “reject any suggestion” that the additional parties had managed to distance themselves from Wayne; (iv) while it may be questionable quite to what extent the three professional witnesses had given evidence “to support” the Defendants’ case or the additional parties had relied on their evidence, the additional parties had relied (to some material extent) at least on Mr Baker’s alleged involvement in the N&Q document, and they relied on Wayne’s evidence which itself involved reliance on his three witnesses, however much Mr Hornett may have tried to distance his clients from them. I therefore reject the submission that the judge erred on a matter of fact which undermined his discretion to an extent which gives this court a new discretion of its own.

10. At the end of the day, this is an appeal on a matter of discretion from a trial judge who applied the correct test, and, after a most careful and comprehensive substantive judgment which is subject to no criticism whatsoever from the additional parties, made a careful evaluation of the various arguments put forward to him on the matter of costs. To some extent, he favoured the arguments advanced on behalf of the additional parties at the costs stage, and made dispositions to take account of their role as compared with Wayne’s. He was expressly conscious and took account of two factors which he said had given him pause as to the correct basis of assessment. He also expressly took account of the fact, relied on by Mr Hornett below, that his “most serious criticisms” had been made of Wayne and his witnesses rather than of the additional parties’ witnesses. In all this, in a complex case of which he had showed himself the master, the judge steered a careful and thoughtful course. In his ultimate judgment that the additional parties had made common cause with the defendant Wayne, the judge was not only entitled to come to the conclusion that he did, but was in my view right to do so.